The Economic Problem

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The Economic Problem

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The Economic Problem

  1. 1. Aquinas College Economics Department The Problem Economics seeks to answer the basic problems of what to produce, how should it be produced and for who ECON1
  2. 2. Aquinas College Economics Department Limited Resources In an economy there are limited resources There are not enough resources to meet the needs and wants for everyone This is known as scarcity Therefore choices have to be made!
  3. 3. Aquinas College Economics Department Opportunity Cost Due to the unlimited wants, each choice has a cost associated with it When using a resource for one choice you will forfeit another choice as you can’t use those resources for another object This is known as opportunity cost
  4. 4. Aquinas College Economics Department Example £100m New Hospital New College Take government spending for example The government has £100 million to spend and it can either spend it on a new hospital or a new college. Should the government choose to build a hospital, the opportunity cost would be a new college. Likewise should they choose to build a college then the opportunity cost is a hospital
  5. 5. Aquinas College Economics Department Example 2 £3 Coffee Lunch You have £3 You can either buy a coffee at Starbucks for £3 or you can buy lunch at McDonalds. If you choose the coffee the opportunity cost is lunch. The opportunity cost is only the next best alternative. Opportunity cost does not consider a broad range of alternatives.
  6. 6. Aquinas College Economics Department Types of Good Economic Good Goods which involve opportunity cost as they are scarce Most goods are economic goods even air! Free Good Goods which have no opportunity cost

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